Economic Security and the Origins of the Cold War, 1945-1950 0231058306, 9780231058308

Citation preview

Econom ic Security and the O rigins o f the C old War,

1945-1950

ECONOMIC SECURITY A N D TH E ORIGINS OF TH E COLD WAR, 1945-1950 ROBERT A. POLLARD

N ew York

C olum bia U niversity Press

1985

Library o f Congress Cataloging in Publication Data Pollard, Robert A ., 1951Economic security and the origins o f the Cold ^ 1945-1950. Bibliography: pi Includes index. 1. United States—Foreign economic relations. 2. U nited States—Foreign relations— 1945-1953. 3. W>rid politics— 1945-1955.1. Title. H F1455.P551985 337.73 85-3786 ISBN 0-231-05830-6 ISBN 0-231-05831-4 (pbk.)

Columbia University Press New York Guildford, Surrey Copyright © 1985 Columbia University Press All rights reserved Printed in the United States of America

Clothbound editions o f Columbia University Press books are Smyth-sewn and printed on permanent and durable add-free paper

To My Mother

C ontents

ONE TW O

THREE

FO U R

F IV E S IX

SEV EN

E IG H T

N IN E

TEN

ELEVEN

Preface The Political Economy of Postwar America Planning for the Peace: Bretton Woods, Postwar Relief, and Soviet-American Relations, 1944-1945 Cold War in the Soviet Sphere: American Policies in Eastern Europe, the Russian Loan, and Containment Doctrine, 1945-1947 Recovery and Crisis in Western Europe, 1945-47 Indecision in Germany, 1945-1947 The Truman Doctrine: Greece, TUrkey, Iran, and U.S. Interests in the Near East The Marshall Plan: Interim Aid, the European Recovery Program, and the Division of Europe, 1947-1949 U.S. Economic Diplomacy in East Asia: The Fall of China and the Reconstruction of Japan, 1945-1950 Natural Resources and National Security: U.S. Policy in the Developing World, 1945-1950 The Waning of Economic Containment: NATO, Military Aid, and NSC 68, 1948-1950 Conclusion

ix 1

10

33 59 82 107

133

168

197 222 243

CONTENTS

Appendix Notes Bibliography Index

255 263 345 363

Preface

I BEGAN THIS STUDY as the United States was extricating itself from its longest and most unsuccessful war, and I am ending it as Americans are recovering from the deepest recession of the post-World War II era. The Vietnam War stimulated widespread public interest in the origins of the Cold War while our recent difficulties have caused many Americans to ask how we ever became so vulnerable to external economic developments. During the late sixties and early seventies, historians associated with the “revisionist” school raised the level of the national debate by reemphasizing the importance of economic factors in American foreign policy. Among other things, these scholars demon­ strated that the United States assumed world-wide commitments after 1945 not just to stop Communist expansion, but to defend certain eco­ nomic interests, both material and ideological, as well. This study draws heavily upon the revisionists’ insights, but breaks with them in its final assessment of American motivation and achieve­ ments. I regard the international economic achievements of the Truman administration as one of the great success stories of the twentieth cen­ tury, not just for the United States but for the Western world as a whole. In contrast with the revisionist portrayal of an imperialist elite bent upon aggrandizing power in the service of world capitalism or narrow U.S. interests, I depict postwar American leaders—President Harry S. Truman, William Clayton, George Kennan, Dean Acheson, among others—as largely enlightened and responsible, willing to sacri­ fice short-term national advantage to long-term gains in Western sta­ bility and security. The Truman administration successfully integrated the Western economies in order to foster global (including U.S.) pros­ perity, stabilize the balance of power, and promote U.S. national security.

X

PREFACE

In this book, I focus upon the last objective because most Cold War studies have underemphasized the role of economic interdependence in upholding the Western alliance and American power. Indeed, succes­ sive Presidents since Truman have felt compelled to defend the multi­ lateralist system for this very purpose. The United States must now pay an imposing price for the maintenance of an open economic order, but that price is worth paying, for the benefits of American economic lead­ ership have greatly exceeded the costs. The debts that I have accumulated since beginning this project are too numerous to acknowledge fully, but I wish to thank a few individu­ als whose support was especially important. First, I am indebted to Samuel R. Williamson, Jr., the Dean of the College of Arts and Sci­ ences at the University of North Carolina and my thesis adviser, for providing continuing encouragement, advice, and criticism throughout the years it took to complete the dissertation. I also wish to thank Michael Hunt for his helpful suggestions in the later stages of the dissertation, as well as Otis Graham, William Leuchtenburg, and James Leutze for their extremely valuable comments in the oral examination. William Becker also deserves my thanks for offering moral support and substantive criticisms of the manuscript. It was a special pleasure to work with Bernard Gronert of Columbia University Press; no author could ask for a more kindly and helpful disposition from an editor. John Lewis Gaddis gave me excellent advice on revising the manuscript for publication, and I used his own work as a model of scholarship on the Cold War. I also wish to acknowledge my debt to Samuel F. Wells, Jr., for helping support the research necessary to complete the dissertation and for bringing me to the Woodrow Wilson International Center for Schol­ ars in Washington and its stimulating intellectual environment and excellent facilities. Among the Wilson Center scholars, I am especially grateful to Mary Furner for providing editorial advice, perspective, and humor; to Avi Shlaim for his comments on the interpretation of the Cold War, especially regarding Germany; and to Michael Hogan for his help on the Marshall Plan. Needless to say, any errors of fact or judg­ ment are my own. Among the many non-historians who were supportive, I should men­ tion Jane Mutnick and Carla Borden for their help on the dissertation, and Steven Lagerfeld, who gave me the benefit of a keen editorial eye and a fresh perspective in numerous readings of the manuscript. Robert Stone, Judith Robb, and Carlton Conant offered able research

PREFACE

XI

assistance, and Diane Rivers helped type the manuscript when time was at a premium. And I would be truly remiss if I did not acknowledge the many “loans” that my brother Kemp floated me in graduate school. The Harry S. Truman Library Institute provided financial support at critical junctures, and I am grateful for the professional assistance of­ fered by the members of the library staff, notably Dennis Bilger, Harry Clark, Erwin Mueller, Elizabeth Safly, and Benedict Zobrist. Thanks to a generous grant from the Institute for Educational Affairs, I was able to spend several months rethinking some of the main issues ad­ dressed in this book, and Michael J. Lacey made it possible for me to remain at the Wilson Center during the last stages of the project. Finally, I wish to thank my mother, Annemarie Zeilmann Pollard, for stimulating my interest in history, and for her support and love through many years of graduate studies, even though I did not become a medical doctor. This book is dedicated to her. Washington, D.C. June 1984

CHAPTER ONE

THE POLITICAL ECONOMY OF POSTWAR AMERICA

HE DEATH of the Bretton Woods system has been proclaimed many times since 1971, when President Richard M. Nixon for­ mally decoupled the dollar from gold. But the spirit of the system and its offspring institutions survive, and its goals—a higher volume of world trade and growing international interdependence—have been largely realized. In 1981, the United States exported about one-fifth of its industrial goods and two-fifths of its agricultural products, compared with about one-tenth for both indices during the 1930s. One-sixth of American employment in that year depended upon export markets while onethird of corporate profit derived from foreign trade and investment. The United States also imported more than half of its supplies of twenty-four of the forty-two most important raw materials. External developments now influence the domestic economy in many important ways. Fluctuations in the exchange rate of the dollar, for instance, can significantly affect the U.S. inflation rate, in addition to the balance of payments and domestic production.1 Yet for the first time since the 1930s, economic issues have emerged as a major source of discord in the West. Conflict over commercial discrimination, interest rates, and sanctions against the Soviet Union threaten the unity and resolve of the Western alliance as never before. To Americans accustomed to the steady growth and relative stability of the postwar era, moreover, the sudden vulnerability of the United States to oil embargoes, import competition, and volatile exchange and interest rates has come as a rude shock. Many Americans have reacted by calling for the erection of steep trade barriers to protect industry and jobs in this country, but the probability of foreign retaliation has deterred Washington from de-

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POLITICAL'ECONOMY OF POSTWAR AMERICA

manding more than symbolic concessions from Japan and the West

European countries. Aside from the economic infeasibility of protec­ tionism, the United States remains wedded to the open and nondiscriminatory system established at Bretton Woods because the political and strategic costs of economic isolationism would be prohib­ itively high. The ideas and institutions that govern the world economy today are a direct legacy of the Truman administration. Postwar American lead­ ers—Harry S. Truman, Dean Acheson, William L. Clayton—deliber­ ately fostered the economic interdependence of the major powers in order to ensure U.S. security and prosperity. Even with the momentous changes in the international economy since 1945, the system still func­ tions largely as the postwar generation of policymakers anticipated it would. The United States pursued an activist economic diplomacy after the war because American leaders enjoyed both the means and the will to exercise leadership of the global economy. While much of Europe and Asia lay in ruins, the United States in 1945 was producing almost half the world’s goods. American officials keenly appreciated the leverage that U.S. economic power afforded them, and the lack of any immedi­ ate military threat to U.S. security encouraged a reliance upon eco­ nomic power as the principal instrument of diplomacy. A common set of beliefs, attitudes, and experiences informed Ameri­ can prescriptions for world peace and prosperity. Most U.S. leaders believed that international economic conditions had been largely re­ sponsible for the outbreak of world war, and that the United States needed to reform global planning and stabilization structures in order to prevent a recurrence of depression and war. “Nations which act as enemies in the marketplace cannot long be friends at the council table,” Assistant Secretary of State William L. Clayton warned a group of Detroit businessmen in May 1945. “Most wars originate in economic causes,” he argued, and the Roosevelt administration had designed the Bretton Woods agreements so that “all nations have free and equal access to the trade and raw materials of the world.”2 This study focuses upon the American quest for “economic security” after World War II, that is, the Truman administration’s effort to create an open world economic order that would serve U.S. strategic pur­ poses. Most histories of the Truman era narrowly define national se­ curity policy in terms of defense budgets, conventional and atomic weapons, military force structures, and defense pacts. In contrast, the

POLITICAL ECONOMY OF POSTWAR AMERICA

3

thesis of this work is that American leaders used foreign economic policy as the main instrument of U.S. security from 1945 to the eve of the Korean War. While other historians have investigated postwar economic diplo­ macy, this is the first synthetic, “post-revisionist” interpretation of Truman’s foreign economic and security policies. Soviet motives and policies in various areas of the world, and American perceptions of them, are subjected to extensive analysis in order to gain new insights into the origins of the Cold War. The impact of American policies upon other major actors in the postwar world economy, notably Britain, Germany, and Japan, receives considerable attention as well. Finally, bureaucratic and domestic political factors are weighed in an effort to develop a multi-causal explanation for American policies. This chapter highlights the scholarly debate over U.S. foreign policy during the early Cold War and the place of this study within it. The remainder of the chapter analyzes the historical perspective of the post­ war American leadership and the values and preconceptions that influ­ enced their approach to economic problems.

T he H istoriographical D ebate

Numerous historians, particularly those associated with the revision­ ist school, have drawn attention to the role of economic and ideological factors in the origins of the Cold War.3 The revisionists have made an important contribution by demonstrating that the Truman administra­ tion regularly used trade and aid to attain certain political aims, notably the containment of Communism, and that conflict over economic issues was a critical cause of Soviet-American tensions. It is also true, as revisionist scholars claim, that many orthodox (and post-revisionist) works on the Cold War have under-emphasized the economic and ideo­ logical roots of American foreign policy.4 This study differs from the revisionists in several crucial respects. In the first place, certain revisionists, such as Joyce and Gabriel Kolko, claim that Washington’s primary and essential “aim was to restructure the world so that American business could trade, operate, and profit without restrictions everywhere.” These historians further contend that this aim “precluded the Left from power” in the industrialized countries and “required limitations on independence and development in the Third World.”5

4

POLITICAL ECONOMY OF POSTWAR AMERICA

Actually, the American preference for an open and nondiscriminatory economic environment—the “Open Door”—was not a zero-sum proposition. That is, U.S. foreign policy objectives were not neces­ sarily achieved at the expense of other countries. The Bretton Woods economic structure undoubtedly yielded handsome political and eco­ nomic dividends for the United States, but this did not prevent other countries participating in this system from making equally striking gains. And as John Lewis Gaddis has argued, the “United States made no systematic effort to suppress socialism within its sphere of influ­ ence.”6 Second, this study attempts to integrate U.S. economic diplomacy into the context of larger political and military objectives. Postwar American foreign economic policy was not, as the Kolkos again con­ tend, harnessed solely or even primarily to an effort “to sustain and to reform world capitalism” through the expansion of foreign trade and investment.7 True, the opening of markets abroad enhanced business profits, but this consideration was not foremost in the minds of policy­ makers. Instead, the Truman administration subordinated foreign eco­ nomic policy to the preservation of democracy in Europe, the support of friendly governments in the Far East, the containment of Soviet power, and other political and strategic aims. The American quest for prosperity went hand-in-hand with efforts toward a sounder world po­ litical and economic structure. A corollary to this observation is that the American preoccupation with the security implications of foreign economic policy preceded the advent of the Cold War. The Bretton Woods system and early postwar American foreign programs were not designed to punish the Soviet Union. Rather, the United States opposed all forms, Left or Right, of economic nationalism and autarky. The American commitment to a stable and interdependent world economy necessitated the reconstruc­ tion of Western Europe with or without the presumed threat of Soviet and Communist expansion. Finally, this study attributes less coherence and design to American foreign economic policies than do most revisionists.8 To be sure, Amer­ ican officials agreed that the foundation of U.S. security and world peace was a prosperous, multilateral international economic system. Yet they often disagreed over how to translate principles into policies, and competing domestic, bureaucratic, and political aims deflected American leaders from a “pure” multilateralist course. There was more than one path to the “reconstruction of world capitalism,” to para-

POLITICAL ECONOMY OF POSTWAR AMERICA

5

phrase the revisionists, and postwar American policies were for the most part neither predictable nor inevitable. Indeed, the United States, despite years of wartime planning, was seriously unprepared for the economic chaos that followed the war.

Lessons o f the P ast

American foreign economic policy after World War II derived in large part from a resolution to profit from the lessons of the past. Underlying all of these lessons were the classical economists’ assump­ tions that depressions gave rise to wars and that free, multilateral trade maximized international prosperity and peace. Three historical experiences—the seemingly effortless workings of the nineteenth-century international economy, the problems of postWorld War I finance and trade, and the Great Depression—shaped the thinking of American planners in the 1940s.9 The thriving international economy and relatively peaceful political climate from 1815 to 1914 demonstrated the value of free trade, stable and convertible currencies based on gold, and minimal governmental interference (except for Lon­ don’s role as a financial center). The gold standard, as managed by the Bank of England, appeared responsible for the stability of currency exchange and prices and the steady growth in production and trade among the Western industrial countries. Britain further facilitated world liquidity and trade before World War I by eliminating most bar­ riers to foreign imports and by balancing its huge current account surpluses with capital outflows.10 The United States, on the other hand, played very little role in managing the international economy during this period: Up to 1914, dominant economic issues were argued in terms of domestic interests in a world taken as given, which U.S. action did little to affect, rather than in terms of economic theory or foreign relations. The British-dominated international eco­ nomic system served American interests well.11 The First World War shattered this system, greatly expanding the functions of government in the West, unsettling the gold standard, breaking traditional patterns of trade, and signaling the decline of Eu­ rope in world trade and finance. Yet the Peace of Versailles failed to address major economic issues, and Great Britain, its export trade and invisible earnings (banking, shipping, insurance) disrupted, lacked the

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POLITICAL ECONOMY OF POSTWAR AMERICA

financial resources and the political will to revive the prewar monetary system. While the war had elevated the United States from debtor to creditor status, Washington was not prepared to accept economic lead­ ership, thanks largely to Congressional opposition to the cancellation of Allied war debts and the reduction of trade barriers. Popular antipathy toward state management left responsibility for international lending, like much of public policy, in private hands.12 Stability in Europe returned for a time after American financiers, with the encouragement of officials in London and Washington, spon­ sored the Dawes Plan in 1924 and the Young Plan in 1929 in order to break the bottleneck of German reparations, and indirectly, Allied war debts to the United States. U.S. foreign investment in Europe ($7 billion of $10 billion world-wide, 1929) helped finance the conti­ nent’s chronic trade deficit with, and war debts to, America. But the corporatist approach—private interests acting as the agents of official policy—did not resolve the key German problem.13 In effect, American bankers lent Germany funds to pay indemnities to the British and French who, in turn, used these same dollars to repay war debts they owed the United States. This Rube Goldberg-like con­ traption of world finance sputtered on until the onset of the Great Depression in the United States cut off the capital flow, helping acti­ vate a chain reaction of bank failures first in Europe, and then in the United States. When the system collapsed, there were few international institutions to cushion the fall. The United States shared the blame for the world depression. Ameri­ can protectionism and recurrent trade surpluses during the 1920s had prevented European countries from paying off their war debts through trade, and the U.S. failure to regulate private loans to Europe encour­ aged highly speculative and irresponsible investment. Moreover, the Federal Reserve’s tightening of the money supply during the early 1930s may have precipitated the financial crisis in Europe, while the notorious Smoot-Hawley Tariff of 1930 triggered a wave of protec­ tionism world-wide.14 As prices fell and unemployment spread, the major industrial coun­ tries scrambled to protect native industries by raising barriers to for­ eign goods and devaluing their currencies. The crisis deepened in 1931 with the British suspension of sterling convertibility, the equivalent of a default for the many countries holding pounds as a reserve currency. The world monetary system began to disintegrate into a number of rival blocs, notably the self-contained, British “sterling” bloc and Ger-

POLITICAL ECONOMY OF POSTWAR AMERICA

7

many’s bilateral trading arrangements in Eastern Europe. From 1929 to 1932, world prices plunged 47.5 percent, the value of world trade by 60 percent, and employment in industrial countries by twenty-five million.15 During the late Hoover and first Roosevelt administrations, the United States largely spurned international cooperation. In 1933, Presi­ dent Franklin D. Roosevelt devalued the dollar and scuttled the Lon­ don Economic Conference, which had been convened to stabilize currencies and to boost world trade and investment. Roosevelt believed that domestic recovery should take precedence over global stabiliza­ tion. “The sound internal economic system of a nation,” he stated, “is a greater factor in its well-being than the price of its currency.” Later, the United States worked for currency stabilization through the 1936 Tri­ partite Agreement with Britain and France and for freer trade through bilateral reciprocal trade agreements. These lukewarm reforms came too late to reverse the downward spiral of world trade in the thirties. To make matters even worse, the economic nationalism and isolationism spurred by the depression reinforced the tendency of some countries, notably Germany in Eastern Europe, to use economic policy as an instrument of war and put a premium on competing political alliances. The abdication of American economic leadership during this period would later haunt U.S. officials.16

T he P ostw ar Consensus

American policy makers in the forties drew several lessons from the events of the previous three decades. They concluded that American prosperity depended at least in part upon a thriving international econ­ omy, and that the federal government must intervene in the economy to preserve full employment and high income. The problem was that do­ mestic objectives often conflicted with an optimum level of world trade. While American officials never resolved this dilemma, they agreed that Washington should take the leadership in creating postwar international institutions that would stabilize currencies, ease financial crises, and promote world commerce, as well as a new collective se­ curity organization that would deter aggression. A properly function­ ing system of world trade would foster interdependence among nations, they reasoned, thereby raising the price of aggression.

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POLITICAL «ECONOMY OF POSTWAR AMERICA

Conflict over economic interests probably had not been the main cause of the world war. Yet most American officials believed that the depression and despair of the 1930s had bred totalitarianism and mili­ tarism. “The next peace,” Vice-President Henry Wallace stated in Jan­ uary 1941, “must take into account the facts of economics; otherwise, it will serve as the seedbed for aggression.” In particular, the erection of closed economic blocs by fascist Germany in Eastern Europe, Japan in the Far East, and Britain in the Commonwealth countries had exacer­ bated economic rivalries and set the great powers on the road to war. Treasury official Harry Dexter White warned in 1942 that “the absence of a high degree of economic collaboration among the leading nations, will, during the coming decade, inevitably result in economic warfare that will be but the prelude and instigator of military warfare on an even vaster scale.” This determination to avoid the mistakes of the past bore fruit in wartime planning. Assistant Secretary of State Dean Acheson observed in April 1945 that the distinguishing feature of American economic planning during World War II was “the wide recognition that peace is possible only if countries work together and prosper together. That is why the economic aspects are no less important than the politi­ cal aspects of the peace.”17 In addition to promoting traditional U.S. objectives—the freedom of the seas, national self-determination, and democratic government— American officials sought to build an “Open Door” world in which nations enjoyed equal opportunities for trade and investment. The as­ sumption was that a nondiscriminatory environment would offer the benefits of peaceful economic competition, equal access to raw mate­ rials, and maximum efficiency through the principle of comparative advantage. The American commitment to the Open Door reflected more than commercial self-interest. “From its beginnings in the liberal democratic theory of John Locke and the laissez-faire economics of Adam Smith, American political and economic ideology has been grounded in the notion that maximum collective good will result from a society structured to permit freedom for individuals to compete in pursuit of their individual interests.”18 In the American view, this prin­ ciple applied equally well to the international environment. Generally, U.S. wartime planners favored private enterprise over state ownership of the means of production and commerce through private channels over state trading. Like most Americans who thought about such issues, these policymakers believed that steady economic growth under a modified capitalist system, rather than radical re-

POLITICAL ECONOMY OF POSTWAR AMERICA

9

distributive reforms under a socialist system, constituted the best way to remedy social ills.19 In practice, this turned out to mean that U.S. foreign aid programs would emphasize increasing production and effi­ ciency over the social transformation of recipient countries. While American officials after the First World War had relied primarily upon private and informal means to achieve similar policy aims, the Truman administration was inclined to make greater use of U.S. governmental agencies and multilateral institutions to implement foreign economic policy. Well before the advent of the Cold War, American policymakers had identified the creation of an interdependent economic system as the basis of postwar American foreign policy. For most of the 1945-1950 period, economic instruments would serve as a partial substitute for a large military establishment. The principles, policies, and institutions established in these years would provide the foundation for American foreign economic policy over the next three decades, and the web of economic ties by which the Truman administration bound together the United States and its allies continues to sustain their collective security.

CHAPTER TW O

PLANNING FOR THE PEACE: BRETTON WOODS, POSTWAR RELIEF, AND SOVIET-AMERICAN RELATIONS, 1944-1945

HE BRETTON WOODS agreements of July 1944 establishing the International Monetary Fund and the World Bank marked the first major attempt by the United States to restructure the world economy. For almost three decades, the Bretton Woods institutions symbolized the American determination to maintain a world economic order based upon free trade and currency convertibility. More importantly, the 1944 conference was the foundation for later efforts to integrate the world economy under American leadership, and thereby to achieve economic security for the United States. The Bretton Woods system was meant to be politically neutral, ac­ commodating both capitalist and socialist countries. Yet thanks to the deterioration of Soviet-American relations soon after the war, the Soviet Union refused to participate in the new monetary and financial organi­ zations. Moscow’s failure to ratify Bretton Woods provides important insights into the origins of the Cold War. Wartime economic planning had not focused on Soviet-American relations, and few foresaw the intense conflict that would develop be­ tween the putative superpowers after the war. Most American officials envisaged pragmatic cooperation among the great powers in the context of the United Nations Organization (UN) and tailored U.S. commercial policies to meet the needs of the Soviet Union and other state-trading countries. Washington, in short, attempted “to construct a new world economic order without first resolving the deep political differences which divided the United States and the Soviet Union.”1 American champions of free trade and multilateralism actually anticipated more

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PLANNING FOR THE PEACE

II

problems with the United Kingdom (and other European industrial countries) than with the Soviet Union. As a result, economic planning at first focused on Anglo-American negotiation and cooperation in building a stable financial and commercial base for European recon­ struction. In pursuing these multilaterlist aims, the United States sought both to enhance its own prosperity and to secure world peace. It should come as no surprise that American ideals and self-interest coincided so neatly, for the primary goal of foreign policy, after all, is to serve the national interest. More surprising is the extent to which the Truman administration relied upon foreign economic instruments to promote American security, as well as American prosperity. During the first months of the Truman presidency, policymakers found their economic tools woefully inadequate for the task. They had inherited highly ambiguous policies and principles from the Roosevelt administration, which had based its wartime planning upon postwar cooperation with the Soviet Union, rapid European reconstruction, and a strong revival of world trade. When none of these conditions was realized after the war, American policy floundered.

R oosevelfs Legacy

Wartime planners had strongly emphasized the link between foreign economic and security policies. Cordell Hull, Secretary of State from 1933 to 1944, embodied the commitment to Wilsonian internationalism and multilateralism more than anyone else in the Roosevelt administra­ tion. The moving force behind the Reciprocal Trade Agreements, Hull saw to it that the Atlantic Charter of August 1941 endorsed freedom of the seas, free trade, equal access for all nations to the raw materials of the world, and international collaboration in the economic field.2 Lend-Lease, which was designed to facilitate U.S. military and eco­ nomic aid to its allies, also contained multilateralist provisions. At Hull’s instigation, the British in Article VII of the Master Lend-Lease Agreement reluctantly pledged to dismantle the discriminatory com­ mercial aspects of the imperial preference system. Hull sought not so much the dissolution of the British Empire as the elimination of all economic blocs since they had presumably helped cause the war. De­ spite his aversion to state-trading systems, the Secretary of State also

12

PLANNING FOR TH E PEACE

favored Lend-Lease to the Soviet Union both to aid the Allied war effort and to include the Soviets in a postwar international commercial system.3 While Hull in principle abhorred all barriers to trade, most Ameri­ can officials, such as Harry Hawkins, Chief of the Division of Commer­ cial Treaties and Agreements, drew a distinction between protectionism and discrimination. In American thinking, the protection of domestic producers through the use of high tariffs and other devices permitted the diversification of the national economy without directly injuring other countries. “The imposition of high, though non-discriminatory, trade barriers for the protection by a country of its own producers . . . is understandable and tolerable,” Hawkins wrote in 1941. Yet the same officials regarded preference as a form of economic aggression, for it excluded certain countries from the benefits of equal access to raw materials, markets, and investment. In time, the aggrieved parties might seek to win by force what they had been denied by peaceful trade. Thus, Hull branded the 1932 Ottawa Agreements (that discrimi­ nated against dollar goods) as “the greatest injury, in a commercial way, that has been inflicted on this country since I have been in public life.” The bilateralism practiced by Germany in Eastern Europe and Japan in East Asia during the thirties confirmed American suspicions that com­ mercial discrimination would divide the world into competing, even warring blocs. (It apparently did not occur to American officials that U.S. discrimination against Japanese goods might have influenced Tokyo’s decision to carve out a Co-Prosperity Sphere in the Far East.) Hull and Hawkins denounced the British Commonwealth preference system precisely because it seemed to foreshadow “trade warfare” be­ tween the United States and Britain.4 While the State Department largely handled commercial matters, the Treasury Department under Henry Morgenthau, Jr., took over finan­ cial planning, with a similar emphasis on economic security. Under Harry Dexter White’s skillful direction, the Treasury began working on an international financial and monetary conference in late 1941. According to the White plan, which was released to the public in April 1943, each member nation would subscribe a small fraction of its cur­ rency to an international monetary fund (IMF) and a world bank (In­ ternational Bank for Reconstruction and Development, or IBRD), which together would regulate currencies and distribute loans to needy countries. While the system entailed some loss of national sovereignty, it also promised to curtail the economic anarchy of the thirties.

PLANNING FOR THE PEACE

13

The United States’ economic supremacy would allow it virtual veto power in both organizations, but Morgenthau and White designed ma­ jor roles in the system for Great Britain and the Soviet Union. Despite the minor part of the USSR in world trade, the Americans and the British wished to avoid the disastrous mistake made at Versailles of excluding a major power. In addition, the Treasury Department pro­ posed a postwar reconstruction loan of $5 billion to $10 billion to the Russians as an incentive for them to participate in the system that many regarded as the precursor to the UN.5 The concept of “economic security”—the idea that American inter­ ests would be best served by an open and integrated economic system, as opposed to a large peacetime military establishment—was firmly established during the wartime period. Treasury planners sought to create a new monetary system that would benefit large and small, cap­ italist and socialist countries alike, for as Harry White put it, “prosper­ ous neighbors are the best neighbors.” Similarly, a State Department memo in February 1944 outlining postwar U.S. commercial policies stressed the link between expanded world trade and American pros­ perity and security. Without international agreement on an open eco­ nomic order, the postwar period would “witness a revival, in more intense form, of the international economic warfare which character­ ized the twenties and thirties.” The memo concluded by reiterating the familiar dictum correlating economic nationalism with war: The development of sound international economic relations is closely related to the problem of security. The establishment of a system of international trade which would make it possible for each country to have greater access to world markets and resources would reduce incentives to military aggression and provide a firm basis for political cooperation. Conversely, if such a system is not established, the international frictions which would result in the economic field would be certain to undermine any international security organization which might be created. Past experience makes it clear that close and endur­ ing cooperation in the political field must rest on a sound foun­ dation of cooperation in economic matters.6 B retton Woods

Bretton Woods was specifically designed to provide the economic basis for international cooperation. On July 1, 1944, delegates from forty-four nations assembled at the opening of the UN Monetary and

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PLANNING FOR THE PEACE

Financial Conference at Bretton Woods, New Hampshire, the first such meeting since the abortive London Conference of 1933. Mindful of the need for bipartisan support, the Roosevelt administration appointed a delegation that included both Democratic and Republican Congress­ men, an economics professor, and a banker, as well as State and Trea­ sury officials. In a welcoming message that was read to the assembled delegates, Roosevelt urged multilateral cooperation because “economic diseases are highly communicable.” Echoing the Atlantic Charter, Morgenthau hailed the conference as “part of a broader program of agreed action to bring about the expansion of productivity, employment, and trade,” and reminded the representatives that “economic aggression can have no other offspring than war.” Creating a dynamic world economy, Mor­ genthau added, “is the indispensable cornerstone of freedom and se­ curity.” If anything, Richard N. Gardner notes, American spokesmen exaggerated the economic roots of war. The aphorism of the day, “If goods can’t cross borders, soldiers will,” epitomized the simplistic, Hullian view that free trade and stable currencies almost alone could guarantee world peace.7 Few other governments shared the American conviction that liberal economic institutions held the key to world peace. For various reasons, the British, the Russians, and conservative American interest groups wanted to modify or abolish the Morgenthau-White plan. The British resented their displacement as the world’s financial center, feared exter­ nal interference with their domestic programs, and sought to retain the advantages of their special trading relationship with the Common­ wealth. In addition to mere imperial pride, the British clung to their fading empire because they expected their trading partners to help them overcome the severe balance-of-payments problems anticipated in the postwar period. To help alleviate their anxiety, the final version of the IMF agreement contained a “scarce currency” clause that, during the first few years after ratification, allowed a country with chronic payments difficulties (e.g., the United Kingdom) either to restrict its payments to a surplus country (e.g., the United States) or to devalue its currency. After that initial period, the American-controlled IMF could limit members’ cur­ rency adjustments. When the British also tied ratification of the accord to a postwar loan from the United States, the American representatives quietly agreed. The British ultimately assented to the American pro­ posals because they would depend heavily upon the United States for

PLANNING FOR THE PEACE

15

postwar reconstruction. Moreover, London had built up a fund of trust with Washington that it did not want to dissipate in disputes over financial issues.8 Since their country had never engaged in a significant volume of foreign trade, the Soviet representatives at the conference were bemused as the British and the Americans battled over various tech­ nicalities. The Soviet Union sought larger political objectives, such as recognition of its great power status, maximum influence in the IMF and IBRD at the smallest possible price, and assurance that the Bretton Woods system would not interfere with its internal policies. Morgenthau and White showed considerable sensitivity to Soviet feelings, in part because they anticipated heavy postwar exchange of American machinery for Russian raw materials, but mostly because the Roosevelt administration desired full Soviet cooperation both in war and in peace. White had insisted all along that “the Fund needs Russia.”9 Consequently, the Soviets won the third largest subscription (contri­ bution and voting power) in the IMF. In recognition of Russia’s war losses, the Americans acceded to Moscow’s demand for a 50 percent increase in its subscription to the Fund (from $800 million to $1,200 million). And when the Russian delegates temporarily refused to con­ tribute an equivalent amount to the World Bank, Morgenthau arranged for the United States and other countries to compensate by increasing their shares. “The quota for the U.S.S.R. which was finally agreed upon,” Raymond F. Mike sell, a participant, recalls, “bore little or no relation to its importance in world trade and was set almost entirely in recognition of its political and potential economic importance.” The Russians finally increased their donation to the Bank on the last day of the conference, July 22, 1944. In his farewell address, Morgenthau praised the Soviet move and claimed that the conference marked the death of economic nationalism.10 The conference itself constituted only the first stage in the Bretton Woods Agreements, for the member states had to ratify the accords before they took effect. In the United States, a broad coalition of Con­ gressmen, bankers, and businessmen fought Bretton Woods from the start. Conservative Congressmen suspected a liberal plot to create an international New Deal. The main foe of Bretton Woods, Republican Senator Robert A. Taft of Ohio, charged that the plan would usurp Congressional control over foreign lending, subsidize investment bank­ ers, throw away the taxpayers’ money, and endanger the domestic econ­ omy by underwriting unsound foreign loans. Instead of pouring dollars

16

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down a “rathole,” as Taft and fellow Republicans put it, the United States should stick with bilateral aid mechanisms like the ExportImport Bank (Eximbank).11 Similarly, the U.S. Chamber of Commerce and the Wall Street com­ munity, notably the American Bankers Association, feared tying the American economy to volatile foreign ones. These groups suggested that the United States should seek bilateral cooperation with the British on postwar trade and currency stabilization before participating in risky ventures like Bretton Woods. New York bankers meeting with State Department officials in August 1944 urged exclusive reliance upon sterling and the dollar, rather than the IMF, to stabilize monetary markets. This “key-currency” proposal favored by conservative finan­ cial interests constituted the status quo of world finance.12 It bears asking at this point why the Roosevelt administration—not known for boldness in international economic affairs—was willing to gamble on the Bretton Woods institutions when conventional wisdom dictated otherwise. Economic self-interest was part of the answer. Spokesmen for Bretton Woods emphasized that the stabilization of fi­ nancial and monetary markets increased demand for American exports, created jobs at home, and safeguarded foreign investment. Massive reconstruction was necessary to avert a cycle of revolutions world-wide, they added, and without Bretton Woods, American taxpayers might be saddled with a huge foreign aid bill after the war. “We must export goods if we are to provide jobs for all of our workers,” James F. Byrnes, Director of the Office of Demobilization and Reconversion, explained to Congress in January 1945, “but we cannot export goods unless others have the dollars required to pay.”13 More importantly, American officials believed that economic na­ tionalism bred aggression. As Morgenthau explained in Foreign Affairs, American isolationism would force needy countries back to “the old game of power politics,” and “power politics would be as disastrous to prosperity as to peace.” Bretton Woods, he added, provided a founda­ tion for cooperation between capitalist and socialist countries. Mor­ genthau opened his testimony before the House Committee on Banking and Currency in March 1945 by arguing that Bretton Woods repre­ sented a simple choice, “stability and order instead of insecurity and chaos.”14 Governmental officials succeeded in portraying opponents of Bretton Woods as short-sighted isolationists, yet the administration clearly overestimated the benefits of U.S. participation in tlje system. For one thing, the successful operation of the IMF and the Bank required world

PLANNING FOR THE PEACE

17

equilibrium (a rough balancing of international payments), a condition that was clearly lacking at the end of the war. Moreover, Congress was misled into believing that no major foreign aid programs would be necessary after Bretton Woods.15 What ultimately assured passage of Bretton Woods were the Allied victory in Europe, a number of tactical concessions by the administra­ tion to appease Congress, and the death of FDR. As Allied armies thrust into Germany from east and west during the winter of 1945, internationalist sentiment attained an irresistible momentum. The ad­ ministration also made Bretton Woods more palatable to conservatives by announcing that the Congress need not vote appropriations because a windfall surplus in the Treasury would cover the American subscrip­ tion to the Bank and the Fund. In a further concession to critics, the Bretton Woods Act established a National Advisory Council on International Monetary and Financial Affairs (NAC) to oversee IMF, Bank, and Eximbank operations. This marked a major departure from the original conception of an impartial, internationally run Bank and Fund, for the creation of the NAC en­ sured that the United States would exercise de facto control over these institutions for many years to come. Roosevelt’s sudden death in April temporarily quieted the more vociferous critics of his multilateralist programs, and by July 1945, the House and the Senate had passed Bretton Woods by comfortable margins.16

T he P roblem o f S o viet N onpartidpation

While most other participants ratified the Bretton Woods accords by the deadline of December 31,1945, the Soviet Union did not. Moscow’s nonparticipation confused American policymakers because they ex­ pected that the Soviets would use the Fund and Bank to gain loans from, and trade with, the West. Although some officials thought the Russian absence would facilitate the workings of Bretton Woods, they regretted the blow to international understanding. Contemporary ex­ planations stressed Soviet distrust of capitalist financial institutions and anger over the American delay in granting them a $6 billion recon­ struction loan, but no one suggested the total breakdown in SovietAmerican relations that one usually associates with the Cold War.17 Some historians have argued that the Soviets had reason to fear that Bretton Woods would interfere with their economic system. Lloyd Gardner, for instance, maintains that the IMF would have intervened

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“quite extensively” in Soviet policies, perhaps even retarding East Eu­ ropean industrialization in order to retain export markets there for the West. Thomas Paterson describes Bretton Woods as part of a concerted American campaign, culminating in the Marshall Plan and German rehabilitation, to exert hegemony over Western Europe and the Middle East. Similarly, Gabriel Kolko believes that the United States sought control over the Bretton Woods institutions in order to promote Ameri­ can free enterprise and to defeat European socialism.18 Yet none of these scholars explains why the Soviets accepted the Bretton Woods agreements in July 1944, only to reject them in Decem­ ber 1945. After all, White and Morgenthau had intentionally built into the system specific provisions for state-trading and socialist economies, as well as disproportionate voting power for the Soviet Union. Nor did the Americans attempt to ensnare the Soviets and East Europeans into raw material production for the West, for the reconstruction aid that White, Morgenthau, and U.S. Ambassador to Moscow W. Averell Harriman recommended for the Soviet Union would have consisted largely of heavy capital equipment for industrialization.19 The best explanation for the Soviet repudiation of Bretton Woods is the sharp confrontation that had erupted between the Soviet Union and the United States in Eastern Europe during 1945. “Moscow’s re­ fusal to participate in the Bretton Woods monetary system or to relax trade barriers in the areas under its control,” John Gaddis concludes, “was an effect rather than a cause of the Cold War.”20 Postwar American foreign economic policy was not driven by a strong anti-Soviet ani­ mus. Truman, in fact, inherited political and military policies from Roosevelt that inhibited a vigorous response to the perceived Soviet aggression.

Trum an and his A dvisers

Franklin D. Roosevelt’s death on April 12,1945, stunned the nation, but probably no one more than the new President, Harry S. Truman. After a decade in the Senate and eighty-three days as Vice-President, Truman could claim almost no expertise in foreign affairs. Roosevelt had excluded him not only from discussions on the atomic bomb, but also from virtually all executive conferences on foreign policy. “Thus, at a time of some of the greatest diplomatic crises in history,” Robert J. Donovan observes, “Truman’s knowledge of events derived mostly

PLANNING FOR THE PEACE

19

from what he read in the newspapers and heard around Capitol Hill.” “The President said this morning . . . that he sat up late last night reading the Yalta agreements again,” Eben A. Ayers, the White House assistant press secretary, recorded in his diary during late May 1945. “He said every time he went over them he found new meanings in them.”21 Cabinet members, White House aides, and Congressional leaders at first doubted Truman’s ability to handle the job. Secretary of War Henry L. Stimson commented in his diary on April 12 that “it was very clear that he knew very little of the task into which he was stepping.” Truman’s White House staff, which never exceeded thirteen, consisted mostly of mediocre individuals who did not always serve the President well. Yet Truman’s vigor, receptivity, and willingness to make clear-cut decisions soon impressed officials accustomed to Roosevelt’s ambiguity and single-handed control of foreign policy.22 Truman’s ignorance of foreign affairs forced him to rely heavily upon his advisers to interpret Roosevelt’s policies. Initially, Truman’s most influential foreign policy advisers were Admiral William D. Leahy, who remained as Chief of Staff to the Commander-in-Chief after Roose­ velt’s death, Averell Harriman, who quickly established a rapport with Truman while visiting Washington in April 1945, and Secretary of the Navy James V. Forrestal, a staunch anti-Communist and a superb ad­ ministrator with the hard-nosed, forthright manner that Truman ad­ mired in men. Leahy familiarized Truman with the most recent, unpleasant mes­ sages between Roosevelt and Stalin and recommended a tougher stand against Russian misconduct in Eastern Europe, notably in Poland. Harriman had foresaken his earlier optimism regarding relations with Moscow and counseled a strictly quid pro quo approach to negotiations with the Russians, whose presence in Europe he compared with a bar­ barian invasion. Having returned to Washington just before the visit of Soviet Foreign Minister V. M. Molotov, Harriman advised the Presi­ dent to give Molotov a thorough dressing-down in their meeting of April 23. While Stimson argued that Poland, the key issue of the day, was a poor case by which to test Soviet behavior, Forrestal agreed with Harriman that it was better to confront the Russians sooner than later in Eastern Europe.23 Truman concurred with the hard-liners. In their April 23 meeting, the President lashed out at Molotov for his government’s alleged failure to honor its agreements at Yalta concerning the self-determination and

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20

independence of the Polish regime. Contemporary liberal critics and revisionist historians alike have claimed to detect a distinct shift in U.S. policy toward a tougher stance against Moscow following this episode. Truman’s brusque, profane style of expression, these critics add, surely jarred Molotov, who was used to Roosevelt’s affable, easy­ going manner. Yet Truman’s stern lecture to Molotov did not signify a reversal of his predecessor’s conciliatory relations with the Soviet Union. Rather, it served as a signal to Moscow that Washington felt events in Poland were now coming to a head and that the Soviets should make some gestures to appease Western opinion, if not implement substantive changes in the Soviet-backed Polish government.24 On this and other major issues, Truman followed the outlines of Roosevelt’s policies at least up to the surrender of Japan. It was understandable that Truman suffered confusion over relations with the Soviet Union during his first months in office. While Roose­ velt had resisted the advice of Harriman, Leahy, Churchill, and the hard-liners in the State Department, his last communications with Sta­ lin and Churchill indicated a growing resolve to contain Soviet power and influence in Europe. Truman’s seeming decisiveness in these mat­ ters disguised his uncertainty. “It was both his strength and his weak­ ness that he had a simple view of right and wrong,” Robert Donovan comments.25

D em obilization

Meanwhile, the unexpectedly rapid collapse of Germany in May and Japan in August 1945 caught the administration unprepared for a series of pressing foreign and domestic decisions.26 The administration’s pre­ occupation with domestic reconversion and the war against Japan, as well as Truman’s desire to await completion of the American atomic program before informing Stalin of it, led the President to postpone the meeting of the Big Three at Potsdam until late July 1945. Several domestic factors constrained the Truman administration’s freedom of action in foreign policy. A lingering isolationism among Congress and the public, manifested in sentiment for rapid demobiliza­ tion and against large-scale foreign aid and defense programs, limited the administration’s ability to meet worldwide American respon­ sibilities. The economic dislocation and high inflation attendant upon the end of the war, coupled with the President’s own fiscal conserva-

PLANNING FOR THE PEACE

21

tism, discouraged experimentation at home or abroad. By the same token, the Republican Party, after so many years out of power, hardly welcomed major foreign policy initiatives by the unelected President. The Second World War, to be sure, had destroyed the traditional bases of support for isolationism. The clear-cut nature of the Axis threat united the nation in a war of survival. Technological develop­ ments, especially long-range bombers and the atomic bomb, meant that the Atlantic and Pacific Oceans could no longer serve as moats that would protect the country from devastating attack by a determined enemy. The war also underscored the growing American dependence upon foreign sources of critical raw materials. Thus, the war experience undermined both the geographical and economic postulates of the old isolationism.27 During the war Roosevelt had won the support of Re­ publican leaders, notably Senator Arthur H. Vandenberg of Michigan, for a postwar collective security organization. Still, isolationism was only transformed, not dead. Roosevelt had not prepared the American public for the postwar rift with the Soviet Union, quite possibly because he himself did not foresee it. Given the priority of the war effort, Roosevelt both understated the differences between Soviet and American postwar goals and failed to educate the public on his efforts to reach a compromise, as reflected in the implicit spheres-of-influence provisions of Yalta, that would accommodate the legitimate security aims of the major powers. The convening of the San Francisco UN Conference amidst the collapse of the Axis engendered a euphoria that did not lend itself to a sober appreciation of America’s continuing responsibilities overseas. In time, a profound disillusion­ ment, a revulsion for foreign affairs, and an exaggerated sense of be­ trayal by America’s erstwhile ally, the Soviet Union, would overtake U.S. public opinion.28 The pell-mell demobilization of American armed forces after the war demonstrated the underlying strength of neo-isolationism. Forrestal and Secretary of War Robert P. Patterson, who had replaced Stimson in September, warned Truman in October 1945 that demobilization jeop­ ardized the American strategic position in the world. Truman agreed, but felt that he could do nothing to stop it. In January 1946, Forrestal noted in his diary, the “Under Secretary [Dean Acheson] said [demobi­ lization] was a matter of great embarrassment and concern to his own Department in their conduct of our foreign affairs.”29 The Truman White House could not contain the overpowering public and bipartisan Congressional outcry—accompanied by riots at overseas military bases in January 1946—for the early return home of American

22

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soldiers. Only a serious foreign crisis could have reversed this trend, and, for the time being, the administration did not publicize its misgiv­ ings about Soviet behavior. American armed forces shrank from about twelve million in June 1945 to one-and-a-half million in June 1947 (see appendix, graph 1). Across-the-board cuts of specialists and experi­ enced members of the armed forces eroded the military effectiveness of units even more than these figures would suggest.30 Meanwhile, legislation for Universal Military Training (UMT), which Truman, Forrestal, and Army Chief of Staff George C. Marshall promoted as the only satisfactory alternative to large standing forces, went nowhere on the Hill. The War Department, reflecting Army in­ terests, continued to recommend UMT, rather than forces-in-being, as the mainstay of American defense in the atomic era on the grounds of fiscal prudence and military efficacy. Yet Congressmen and interest groups often voiced the suspicion that UMT was somehow un-Ameri­ can. In April 1946, Congress unenthusiastically extended the draft through March 1947, but forced the services to resort to voluntary recruitment between April 1947 and August 1948. The United States continued to maintain the largest navy and air force in the world and to retain a monopoly on the atomic bomb. But after one takes into account American commitments in occupied territories, the United States lacked the ground forces required to intervene in anything greater than a minor conflict, such as that over Venezia Giulia. Another result of demobilization and the failure of UMT was to highlight the importance of atomic weapons in defense planning.31 By both choice and necessity, the Truman administration relied more on economic than military power to achieve its foreign policy aims. Strategic planning reflected this emphasis. The Joint Chiefs did not approve a statement of general military strategy until mid-1947, nor a war plan until 1948, for they accepted the State Department’s assess­ ment that the main danger facing the United States was political rather than military. Similarly, the Army air staff did not fully accept the deterrent concept of powerful air forces in place and on the alert until 1947.32 Although the pace and scale of demobilization dismayed the Presi­ dent and his advisers, almost everyone agreed that major cuts in de­ fense spending were in order. Administration officials perceived no immediate threat to U.S. security and feared that the continuation of wartime expenditures and deficits, or anything approaching them, would bankrupt the country. While the war hady demonstrated the

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23

power of expansionary fiscal policies to spur enormous growth and high employment, Keynesian economics—in the sense of major compensa­ tory spending to stimulate the economy—had made little headway among either the general public or Truman’s Cabinet, which assigned priority to balancing the budget. Hence, the annual rate of military spending plunged from $90.9 billion in January 1945 to $10.3 billion during the second quarter of 1947 (see appendix, graph 3).33 The cessa­ tion of hostilities would have prompted defense cutbacks in any case, but the fiscally conservative mood of the country, which Truman and his advisers shared, caused what in retrospect appears a precipitous dismantling of the American military machine. No pervasive, national security “ideology” characterized U.S. mili­ tary thinking in the early postwar period.34 The disorganization, mis­ conceptions, and infighting that had disrupted the military services during the war continued well into the postwar period. This does not mean that the military services did not engage in contingency planning for wars of the future, against Russia among other hypothetical en­ emies. Military planning, however, was not the same thing as actual defense programs, for the Truman administration did not believe that the Soviet Union posed a direct military threat to the United States at the end of the war. Instead, the containment doctrine that evolved from early confrontation with the Soviet Union would prescribe primary reliance upon the greatest American asset of all, its unrivalled eco­ nomic power.

,

R econversion, In fla tio n and P arty P olitics

Before the United States could engage in ambitious economic pro­ grams abroad, it had to get its own house in order. Initially, economic planners feared that demobilization and reduced governmental spend­ ing would trigger massive unemployment reminiscent of the Great De­ pression. “Unless we develop domestic and foreign markets for something approximating 90 billion dollars’ worth of goods and ser­ vices on top of the present 100-billion-dollar rate of civilian output,” an official in the Office of War Mobilization and Reconversion warned in late 1944, “unemployment will be unavoidable.” Owing to the postwar aversion to governmental intervention in the economy, most officials and business leaders hoped that the expansion of American exports would help ease reconversion and maintain a high rate of economic growth.35

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A sharp rise in unemployment in the summer and fall of 1945 height­ ened fears of a postwar depression and moved the administration to propose tax cuts to stimulate the economy. But government economists gradually realized that employment would rebound as the economy shifted from defense to consumer production. Inflation, fueled by war­ time federal spending, public debt, enormous individual savings and pent-up demand for consumer goods, now posed the main danger to the economy. Truman at first gave only lukewarm support to the anti-inflationary efforts of the Office of Price Administration (OPA), and Congress, which blamed governmental regulation for housing, meat, and other shortages, stripped OPA of its powers and cut taxes deeper than Tru­ man had requested. As a result, double-digit inflation, coupled with countless strikes as workers sought to compensate for wages foregone during the war, plagued Truman’s first years as President. Not until January 1946 did the President himself recognize that inflation, rather than unemployment, was his greatest domestic problem.36 The economy would influence the administration’s foreign policy in subtle, but important, ways. Postwar inflation reinforced the wide­ spread desire to cut governmental spending and programs. Spiraling prices also undercut the need for governmental promotion of exports in order to sustain the economy, for postwar inflation resulted from excess domestic and foreign demand for American goods at a time of high U.S. employment and production. Thus, excess domestic production did not, as some scholars claim, drive the United States into a desperate postwar search for overseas markets. Congressional and party politics also constrained Truman’s freedom of action. Republican strength in the Congress necessitated frequent and close consultation with Congressional leaders by the White House; the “imperial presidency” was not a product of the Truman era. The President also at first lacked the enthusiastic support of his own party. Truman’s increasingly tough stance with the Soviet Union alienated liberal Democrats accustomed to the outwardly harmonious relations with that country while Roosevelt was President. Until early 1948, Alonzo L. Hamby notes, the feeling of most liberals was that Roosevelt could have preserved Allied unity and that Truman had broken with his predecessor’s foreign policy.37 Domestic conditions limited the options available to the Truman administration in foreign policy. Although most Americans shunned isolationism, few welcomed the prospect of extensive intervention

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25

overseas. Given a choice, most of the public preferred foreign aid programs to a permanent U.S. military presence overseas, but eco­ nomic problems at home did not encourage any bold ventures abroad. Besides, according to the administration’s own experts, temporary U.S. relief programs in conjunction with the Bretton Woods institu­ tions would be sufficient to meet the relief needs of most wartorn countries. Truman had every reason to believe that only limited aid programs were necessary—and politically feasible—in the early post­ war period.

E a rly P ostw ar R e lie f Program s

The prerequisite for world peace, American policymakers believed, was the reconstruction of a stable, prosperous, and democratic Europe. Yet since wartime planners had failed to anticipate either the extent of European devastation or the obstacles to recovery, the relief programs of the 1945-46 period proved to be expensive failures. Soon after the Bretton Woods conference had adjourned, American planners realized that European reconstruction and the revival of world trade would require more than structural reforms to reduce trade bar­ riers and regulate currencies, especially since the Bank and Fund would take a year or more to begin operations. In August 1944, State Depart­ ment officials determined that Europe needed additional Eximbank loans, increased private investment, and postwar extension of LendLease, especially to the Soviet Union. Similarly, Eugene V. Rostow, then a professor at the Yale University Law School but formerly a State Department adviser on Lend-Lease, warned in October 1944 that if the United States did not immediately expand world credit, the ensuing economic warfare would “split the capitalist part of the world down the middle.”38 Even then, the proposed remedies fell far short of European needs. In effect, governmental planners mistakenly believed that “priming the pump” of foreign economies would quickly restore normal private ac­ tivity. Their optimism was unjustified for two reasons. First, stimula­ tive fiscal measures, in this case foreign aid, could not by themselves restore the public confidence and private investment necessary to spur long-term recovery. Even if they had been operative in this period, the Bretton Woods institutions and multilateral trade agreements would have only provided the external preconditions for recovery.

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Second, while American planners recognized the importance of pri­ vate investment to European recovery, they had not created the mecha­ nisms for a capital flow from the United States, the only potential source of major funding, to Europe. Most American investors were reluctant to sink capital in overseas ventures since the war had wiped out many of their foreign properties. The prospects for profitable in­ vestment in wartorn Europe looked particularly bleak. Also, since much of the investment of the twenties had been high-risk “hot capital” that later caused serious monetary problems, American planners had designed the Bretton Woods system to inhibit overseas capital move­ ments while stimulating trade in goods and services. “The close collabo­ ration between central bankers and governments that has characterized the postwar period,” Richard Gardner states, “was neither foreseen nor even encouraged by wartime planners.”39 Not surprisingly, the piecemeal European relief programs of the early Truman administration followed no coherent strategy. American officials remained strongly committed to the multilateralist concepts embodied in Bretton Woods, but these principles were not easily trans­ lated into practice.

U N R R A and the P olitics o f R e lie f

The story of the UN Relief and Rehabilitation Agency (UNRRA) illustrates the difficulty of implementing policy on the basis of illdefined principles. Founded in 1943 by forty-four nations, UNRRA distributed about $4 billion in basic necessities to war victims over the next four years. Since the United States provided three-fourths of its funding, Americans headed and controlled its central organization, but not the local distribution of aid.40 The UNRRA programs in Soviet-occupied Eastern Europe, which received half of the aid, immediately became a source of controversy. The U.S. government and the American press charged that local re­ gimes, at Soviet instigation, were using UNRRA for political purposes. Throughout 1945, American diplomats reported misuse of UNRRA supplies by the Soviet-backed (Lublin) Polish government to the disad­ vantage of supporters of the Western-backed (London) government-inexile, as well as the diversion of supplies to the Red Army. Similarly, Ambassador to Czechoslovakia Laurence A. Steinhardt charged the

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27

Soviets in the fall of 1945 with misleading the Czechoslovak public about the source of UNRRA supplies, using UNRRA to secure local political advantage, and siphoning off aid for the Red Army. The United States also resisted attempts by the Yugoslav government to control distribution of UNRRA supplies because American diplomats claimed that Tito’s army consumed much of the aid.41 Not all reports were so critical. In July 1945, for example, Harriman told Washington that current information was indequate to make a firm judgment on the alleged Soviet abuses of UNRRA in Poland and Czechoslovakia. American observers in Yugoslavia during August re­ ported no evidence of political discrimination despite some inequities in distribution due to transportation problems. Though some irreg­ ularities occurred, Thomas Paterson concludes, most charges against UNRRA operations in Eastern Europe were spurious, and the program fairly and efficiently assisted innumerable destitute Europeans.42 The administration was at first reluctant to make a vigorous public defense of UNRRA, in part because of the program’s unpopularity. The State Department ultimately supported $250 million in UNRRA aid to the Soviet Union in August 1945 after the Soviets accepted greater UNRRA control and supervision of operations in their sphere. Yet Congress repeatedly attached burdensome restrictions to UNRRA appropriations and threatened to end American participation in the program altogether. Implementing the program proved no easier than steering the legisla­ tion through Congress. In one instance, Secretary of State James E Byrnes had to order the Bureau of the Budget to expedite funding of UNRRA when the BOB appeared to be balking. Wary of public opposi­ tion to controls, Truman did not reinstitute food rationing in 1946 when American grain shipments to UNRRA recipients fell short, and instead opted for a largely unsuccessful voluntary program for food conserva­ tion. Still, American food deliveries provided the margin of survival for many Europeans.43 In August 1946, the administration moved to terminate UNRRA by the end of the year, ostensibly because European food shortages had eased. But disappointment over the minimal political leverage that UNRRA had afforded the United States in Eastern Europe undoubt­ edly played a role as well.44 In American eyes, an experiment in inter­ national cooperation had failed, and henceforth, the United States favored bilateral foreign aid programs that it could control.

PLANNING FOR THE PEACE

28 L end-L ease

The cancellation of Lend-Lease did far more than UNRRA to exacer­ bate Soviet-American tension. Altogether, the United States furnished about $11 billion in Lend-Lease to support the Soviet war effort. To facilitate the flow of aid, President Roosevelt ordered Lend-Lease au­ thorities to waive standard procedures in examining Soviet aid re­ quests. Roosevelt also rejected suggestions by Harriman and others late in the war that the United States demand Soviet concessions for LendLease. Like the British, the Soviets received military material under Lend-Lease without formal obligation for repayment. The Soviets, however, neither expressed appreciation for this special treatment nor acknowledged American requests for military information.45 Unconditional Lend-Lease was already on the way out when the Soviets tried to gain postwar reconstruction aid through Lend-Lease. Congress had expressly prohibited the use of Land-Lease for this pur­ pose. When negotiations over a postwar Russian loan stalled, the Roosevelt administration in May 1944 devised an amendment under section 3(c) of the Lend-Lease agreement by which the Soviets could buy non-military items in the Lend-Lease pipeline for postwar re­ habilitation. Moscow, hoping for a reconstruction loan, ignored the proposal, but Molotov’s request in January 1945 for a $6 billion credit on the same generous terms as Lend-Lease met a frosty welcome. Leo T. Crowley, head of the Foreign Economic Administration, made the case for a strict segregation of Lend-Lease—a war supply program—from postwar reconstruction, especially since the Soviets had yet to accept the 3(c) proposal. After further wrangling with the Soviets over the terms of a loan, Harriman and Secretary of State Edward R. Stettinius, Jr., agreed that the United States should withdraw the 3(c) proposal and cut back industrial shipments under Lend-Lease to the Soviet Union.46 Roosevelt subsequently approved Crowley’s recommendation to eliminate most postwar reconstruction aid under Lend-Lease, with cer­ tain exceptions, and the State Department informed the Soviets to this effect in March 1945. While the withdrawal of section 3(c) did not signify a reversal of U.S. policy toward Russia, it did serve notice to Lend-Lease administrators that “legal limitations would require sub­ stantial adjustments in all programs when hostilities in Europe ceased.”47

PLANNING FOR THE PEACE

29

Even had Roosevelt lived, Congress probably would have further restricted Lend-Lease to Russia. Just two days before Roosevelt’s death, Vice-President Thiman cast the deciding vote that broke a Sen­ ate deadlock over the very issue of whether recipients could use LendLease for postwar reconstruction. (Without Truman’s intervention, all nonmilitary Lend-Lease shipments to Russia would have ceased.) A spirit of ecomony then pervaded Washington, and Congress subjected foreign aid requests to greater scrutiny as the war against Japan acceler­ ated. Due to its privileged position during the war, the Soviet Union received special attention. While the United States had curtailed LendLease to Great Britain beginning in the summer of 1944, Lend-Lease shipments to Russia peaked in May 1945. Cutbacks in Lend-Lease during the spring of 1945 were bound to have a greater impact upon the Soviets than the British even if the intent were not to discriminate against one or the other.48 Nonetheless, Truman seriously blundered when he signed Crowley’s memo of May 11, 1945, which caused an immediate cut-off of all LendLease aid, including shipments in progress, for Soviet and other allied operations in Europe. The President apparently did not fully realize the diplomatic implications of so sudden and drastic a decision. The Soviets at first feigned “complete surprise,” but accepted the American decision. Stalin did not object so much to the fact of Lend-Lease termi­ nation as to the “brutal” manner in which it was done. In June, Soviet Foreign Trade Commissar A. A. Mikoyan complained to Harriman that the abrupt end of Lend-Lease seemed to mark a shift from the coopera­ tive spirit of Yalta. Harriman countered that the Soviets had had a year to act upon the 3(c) offer, and that Congress had mandated termination beginning on VE day.49 Lend-Lease was an irritant in Soviet-American relations rather than a decisive precipitant of the Cold War. American representatives had repeatedly emphasized that Lend-Lease was strictly a military aid pro­ gram that would cease upon the end of hostilities. Besides, the Soviets eventually received large Lend-Lease supplies to fulfill their war needs in the Far East, as well as a “pipeline agreement” for postwar LendLease purchases. If anything, the Soviets may have welcomed the American faux pas in May 1945, for it gave them an opportunity to charge the new administration with reversing Roosevelt’s policies and to demand more liberal terms for postwar aid. As early as the fall of 1945, some Soviet officials were hinting that compensation even for

30

PLANNING FOR THE PEACE

industrial items furnished under Lend-Lease was unlikely since their country had already paid for Lend-Lease in blood.50 The lack of a Lend-Lease settlement has plagued Soviet-American economic rela­ tions to this day.

The E xim b a n k, E uropean R ecovery, and A id to R ussia

Whereas UNRRA and Lend-Lease did not easily lend themselves to political uses, the Export-Import Bank did. Congress had established the Eximbank in 1934 in order to promote U.S. exports, but the “coming of World War II saw a shift in Eximbank’s policies in the direction of U.S. foreign policy and the strategic interests of the U.S. Government.” In the postwar period, Herbert Feis wrote in the July 1945 issue of Foreign Affairs, the United States would refuse to extend credit to those nations “which may seem either to threaten our own safety, or to wish to dominate others, or to be wedded to oppression.”51 Following the defeat of the Third Reich, American officials realized that Europe would collapse without some financial mechanism to re­ place Lend-Lease. Officials of the Foreign Economic Administration (FEA) observed in May 1945 that the United States was furnishing altogether about $7 billion a year in nonmilitary Lend-Lease and that postwar foreign reconstruction needs would equal or exceed that fig­ ure. Without such aid, they predicted “grave political instability in Europe, . . . a marked decline in employment and production in the United States, . . . and the seeds of another world war.” Given the inadequacy of postwar Lend-Lease and UNRRA, the Bretton Woods institutions, private investment, and foreign reserves, the FEA officials recommended a multi-billion dollar increase in Eximbank lending au­ thority.52 The White House in July 1945 asked Congress to increase Eximbank assets from $700 million to $3.5 billion. Significantly, the State Depart­ ment at that time favored a $1 billion credit to the Soviet Union for the year beginning July 1945 and another $1-2 billion credit to the Soviets for the following year if Congress authorized additional funds. In ap­ proving the White House request, Congress facilitated a Russion loan by repealing the Johnson Act of 1934, which forbade both governmen­ tal and private loans to countries that had defaulted on their obligations to the United States.53

PLANNING FOR THE PEACE

31

Several factors led the Eximbank to concentrate most of its resources in Western Europe. American businessmen and economic plannèrs had earlier assumed that Soviet trade was necessary to bolster peacetime American exports, production, and employment. But the postwar surge in West European imports and in domestic U.S. demand elimi­ nated the danger of depression for the near term. As the economic rationale for a Russian loan lost force, political factors, particularly the desire to influence Russian policies in Eastern Europe and to shore up beleagured West European governments, assumed increasing impor­ tance. The State Department’s de facto domination of the NAC, which coor­ dinated Eximbank, IMF, and Bank operations, accentuated the politi­ cal orientation of the Eximbank. In a September 1945 memo to FEA head Crowley, who was also Chairman of the Eximbank, Secretary of State Brynes (who had replaced Stettinius in July) stressed “the impor­ tance of relating [the Eximbank’s] program to the framework of the foreign policy of the United States.” Byrnes also requested regular State Department participation in the NAC since it was “essential that financial aid for reconstruction go hand in hand” with commercial policy.54 Budgetary pressures helped cause the evolution of the Eximbank into a political weapon. In January 1946, the NAC staff committee esti­ mated that urgent foreign loan needs for 1946 exceeded the Eximbank’s lending capacity by $1.5 billion. Setting aside the Russian loan would largely eliminate the need for extra Congressional funding.55 With its limited resources, the Eximbank would focus its efforts in West Euro­ pean countries whose recovery would do most to revive world trade.

T he P olitics o f Foreign Econom ic P olicy

Wartime planners had sought a stable and peaceful world order struc­ tured on American economic principles. Anything less, they had reasoned, would reinstitute the prewar cycle of depression, economic rivalry, and war. The UN, it was hoped, would provide the collective security apparatus necessary to deter aggression. To meet its respon­ sibilities in the UN, its extensive occupation duties, and its other for­ eign commitments would have required the United States to maintain unprecedentedly large armed forces after the war.

32

PLANNING FOR TH E PEACE

Yet public war weariness, budgetary pressures, and the seeming ab­ sence of any serious military threat made the Truman administration drastically scale down American military might. American policy­ makers confidently believed that the United States could utilize its massive economic power to persuade or compel other countries to adopt the multilateralist principles embodied in Bretton Woods. These principles presumably offered a neutral basis by which countries could peacefully and fairly compete for the world’s resources. A politically free, economically open world order would also eliminate the roots of war. The Soviet erection of a relatively closed sphere of influence in East­ ern Europe appeared to challenge American plans. Aside from the repugnance felt toward the repressive political systems that the Soviets sponsored there, American decision makers feared that Soviet eco­ nomic policies might encourage the formation of closed economic blocs in Western Europe and elsewhere. Yet in the initial postwar period, American leaders failed to challenge Soviet hegemony in Eastern Eu­ rope or to mobilize America’s economic power behind an effective pro­ gram for West European recovery.

CHAPTER TH R EE

COLD WAR IN THE SOVIET SPHERE: AMERICAN POLICIES IN EASTERN EUROPE, THE RUSSIAN LOAN, AND CONTAINMENT DOCTRINE, 1945-1947

HE OPENING SHOTS of the Cold War were fired over Eastern Europe. Underlying the controversy over this region was a funda­ mental difference between Soviet and American concepts of security. To the Russians, security dictated extraordinary measures to control the political and economic destiny of Eastern Europe, while to the Americans, the nearly closed Soviet sphere seemed to threaten the open and integrated economic order upon which U.S. hopes for peace and prosperity rested. Historians differ on the roots of U.S. policy toward Eastern Europe. According to the orthodox interpretation, the crux of the problem was the Red Army’s imposition of unrepresentative governments in certain East European capitals. Thus, the orthodox historians argue that the Truman administration’s policies marked a defensive reaction to Soviet political repression in the East European countries; economic issues played little or no part in the conflict. In contrast, most revisionist historians portray Stalin as a patriotic Russian statesman who simply sought to achieve traditional czarist security aims in Eastern Europe. According to this view, the unwilling­ ness of the Truman administration to grant the Soviets a sphere of influence in Eastern Europe precipitated the Cold War. Some revision­ ists, such as Joyce and Gabriel Kolko, further claim that American efforts to establish an Open Door in the region—open to U.S. trade, investment, and political influence—was the main cause of SovietAmerican tensions.1

34

GOLD WAR IN THE SOVIET SPHERE

Yet American leaders were not categorically opposed to spheres of influence. They realized that the United States was almost powerless to influence events in Eastern Europe as long as Soviet armies remained there to exercise the will of the Kremlin. U.S. interests in the region were in any case too small to justify a diversion of American resources from more important areas, such as Western Europe. Nor did the United States deny the right of the Soviet Union to safeguard its security interests in Eastern Europe after the war. A tradi­ tional sphere of influence—in which Moscow exercised control over the major strategic and foreign policy decisions of its client states, but did not interfere with their internal policies—was acceptable to Wash­ ington. A Soviet protectorate that brought to mind memories of the prewar Nazi system was not. As U.S. diplomat Charles E. Bohlen noted in 1947, Washington’s wartime agreements with Moscow clearly indi­ cated that “we were not attempting to deny to Russia the perquisites of a great power, namely that she has a certain primary strategic interest in the countries that lie along her borders. It has been the abuse of that right which has caused most of the trouble we have had.”2 Without question, disputes over political issues, particularly the sta­ tus of the Polish government, lay at the heart of East-West tensions. But conflict over trade and aid further aggravated relations between Washington and Moscow, and this chapter will focus on the manner in which the confrontation over economic issues helped stimulate the de­ velopment of a containment doctrine. In brief, American officials feared that a Soviet bloc in Eastern Europe would spawn a multitude of equally closed blocs in Western Europe and elsewhere, replicating the very conditions that had given birth to World War II. In at least one regard, the Americans shared the blame for the trag­ edy of Eastern Europe. During and immediately after the war, U.S. policy was marked by vacillation and confusion, as American policy­ makers vainly sought a postwar accommodation with the Soviet Union that would not compromise the independence of the East European countries. The Roosevelt administration’s tactic of deferring political and territorial issues until the end of the war did not help matters. On Poland, Roosevelt attempted an impossible balancing act between the Soviets and the (London) Polish government-in-exile. In the end, he inadvertently alienated the Soviets without gaining a satisfactory settle­ ment for the London Poles. Key issues remained unresolved when FDR died. As Vojtech Mastny puts it, “It was not so much an open

COLD WAR IN THE SOVIET SPHERE

35

clash of interests as their dangerously indefinite and elastic nature that jeopardized the wartime alliance in the long run.”3 Roosevelt compounded the problem for his successor by concealing the realities of Soviet power and Anglo-American concessions in East­ ern Europe from the American public. Officials in the Roosevelt ad­ ministration believed, rightly or wrongly, that public aversion to power politics constrained them from revealing the agreements reached at the wartime conferences. Yet the American effort to sustain the wartime alliance may have been doomed from the start. As Soviet diplomat Maxim Litvinov told CBS correspondent Richard C. Hottelet in Moscow during June 1946, the “root cause” of East-West confrontation was “the ideological conception prevailing here that conflict between Communist and capitalist worlds is inevitable.” When Hottelet asked what would happen if the West were suddenly to grant the Kremlin all of its current foreign policy aims, Litvinov answered, “It would lead to the West’s being faced, after a more or less short time, with the next series of demands.”4

S o v ie t G oals in E astern E urope

Much of the debate on the origins of the Cold War really concerns the question of Soviet motivation. Even in the improbable event that the Kremlin were to open its archives to scholars, a consensus on this problem would be unlikely. Nonetheless, most historians agree that postwar Soviet policies in Eastern Europe were the product of recon­ struction needs, traditional foreign policy objectives, Stalinist ideology, and internal political imperatives. Soviet reconstruction needs were immense, for the German invasion had devastated European Russia. By the end of the war, the Soviet Union had suffered 20 million dead and the destruction of 1,710 towns, 70,000 villages, and 5 million homes. “In their retreat,” a Soviet scholar wrote in 1946, “the Germans left zones which can simply be described as deserts.” In 1945, production in the formerly occupied territories reached only 30 percent of prewar levels. With the cut-off of Lend-Lease, the Soviet Union lacked the foreign exchange to pay for badly needed imports. Although industrial productivity rapidly re­ covered, a terrible drought in 1946 caused widespread hunger and pushed living standards below even the Russian norm.5

36

COLD WAR IN THE SOVIET SPHERE

In order to help restore its economy, the Soviet Union extracted major concessions from the East European countries. During the war, the Soviets had blocked a British-backed plan for an East European economic federation and instead established a series of bilateral agree­ ments with East European governments-in-exile. Once they had liber­ ated the region from Nazi rule, the Soviets seized reparations from Rumania and Hungary, expropriated sizeable assets in occupied coun­ tries as German “war booty,” and gained a controlling interest in nu­ merous joint-stock companies. The Soviet Union also determined the nature and direction of trade in its newly won empire. The East European countries had engaged in minimal trade with Russia during the 1930s, but Soviet commerce with the region soared after the war. While Western countries still traded extensively with Eastern Europe (an average of $1.3 billion annually, 1947-1949), the Kremlin used its political clout to secure highly favor­ able, bilateral trade agreements that discriminated against the West and exacted a heavy price from the satellites. From the American perspec­ tive, the Soviets were apparently replacing the former German eco­ nomic bloc in Eastern Europe with their own.6 An alternative interpretation holds that many of the economic re­ forms in Eastern Europe were not imposed by the Soviets, but sprang from indigenous sources. As Barbara Ward noted at the time, the na­ tionalization of heavy industry in Central and Eastern Europe had be­ gun in the prewar era, and the decision of postwar governments to accelerate the process enjoyed broad popular support. Immediately after the war, Soviet intervention in the satellite countries was largely opportunistic and uncoordinated, varying with local circumstances. Moscow, according to this view, had no master plan for economic revo­ lution in Eastern Europe.7 Revisionist historians further argue that the Soviet quest for clearly defined spheres of influence in Europe, if fulfilled, might have fostered stable and harmonious relations among the great powers. The Kremlin’s demand for primary influence in Eastern Europe, they be­ lieve, derived from the centuries-long Russian quest to build a buffer zone of allied Pan-Slav states against foreign aggression. At Yalta, Stalin asserted that a strong and friendly Poland was essential to Rus­ sian security because enemies had so often used Poland as a corridor for invasion. Since the Western allies had tacitly accepted his posi­ tion in wartime negotiations, the revisionists contend, the later AngloAmerican challenge to Moscow’s sphere aroused latent Soviet fears of

COLD WAR IN THE SOVIET SPHERE

37

capitalist encirclement and triggered a further tightening of control over the satellites.8 This interpretation does not explain several crucial aspects of Soviet policy. In the first place, Western statesmen viewed the Red Army’s advance into Eastern Europe with mixed emotions. While they hailed the defeat of Nazism, officials in Washington and London sought the early withdrawal of Soviet troops from the “liberated” East European countries, for Russian expansionism, whether carried out by a czarist or a Soviet government, threatened the balance of power in Europe. What is more, the Soviets sought power and influence in Eastern Europe far in excess of their security requirements. “If indeed it be true . . . that the motive force of postwar Soviet policy was a desire for security,” Eduard Mark asks, “why did the Soviets act as though se­ curity was inseparable from domination?” Soviet expert Charles Bohlen provided a partial answer in October 1945, when he observed that “from all indications the Soviet mind is incapable of making a distinc­ tion between influence and domination, or between a friendly govern­ ment and a puppet government.”9 The Soviet crackdown in Poland, Rumania, and Bulgaria immedi­ ately after the war cannot be explained by the Kremlin’s apprehension of an attack from the West. The United States maintained only small garrison forces on the continent after VE Day and did not systemat­ ically use the U.S. atomic monopoly to press for Soviet concessions in Eastern Europe or elsewhere. Stalin in any event secretly demobilized the Soviet armed forces from 11,365,000 in 1945 to 2,874,000 in 1948, roughly twice the American total. This gave the Soviets an overwhelm­ ing edge in ground forces in Europe, without suggesting that Moscow anticipated imminent aggression from Western countries. Moreover, Soviet research on an atomic bomb was well under way by the Potsdam Conference in July 1945.10 Neither traditional security concerns nor American “atomic blackmail” can fully account for Soviet policies be­ fore the Marshall Plan. Revisionists generally portray Stalin’s foreign policy as cautious and opportunistic. Yet Stalin’s treatment of the London Poles was neither flexible nor tolerant. During the war, Stalin summarily rejected their plea for the restoration of territories seized under the Nazi-Soviet Pact of 1939, when Poland, after all, had been the victim of Hitler’s (and Stalin’s) aggression. The Soviets later imposed a highly unrepresenta­ tive government and an unfavorable commercial treaty upon a country that had suffered enormously during the war.

38

COLD WAR IN THE SOVIET SPHERE

Stalin’s argument regarding Poland as an invasion “corridor” also does not hold up well. Russian control of Poland in 1812 and 1914 had not prevented invasions from the West; nor did the Soviet annexation of eastern Poland in 1939 stop Hitler’s armies in 1941. Corridors open both ways. After the war, Stalin may have viewed Poland as an entrance to Germany, and Eastern Europe as an opening to the West.11 The reconstruction of the Soviet Union and the industrialization of Eastern Europe did not necessarily rule out continued Western trade and investment in the region. Marxist-Leninist doctrine did not dictate autarkic policies. “Soviet trade during the 1920’s and 1930’s,” one ex­ pert observes, had been “of a distinctly multilateral character.” The Soviets probably excluded Western businessmen from Eastern Europe after 1945 because they interfered with Soviet economic exploitation of the region, not because their presence was truly incompatible with socialist reform.12 A fundamental misconception about the U.S. economy also inhibited the Soviets from vigorously pursuing American trade and aid. Kremlin leaders, notably Stalin, assumed that the United States would face a crisis of over-production after the war. Thus, Molotov’s request in Jan­ uary 1945 for a $6 billion loan rudely implied that the Soviets were doing the Americans a favor. Although Eugene Varga, the eminent Soviet economist, argued in 1946 that the collapse of capitalism was not imminent, he failed to dissuade the Kremlin and was forced to recant. The Soviets spurned economic ties with the United States because they were “acutely sensitive to economic dependence as a harbinger of polit­ ical dependence.” In addition, the Soviets expected Anglo-American commercial rivalry to precipitate a major war between the capitalist powers, from which socialism would emerge triumphant.13 Just as Stalinist ideology came to dictate an autarkic economic pro­ gram, the nature of the Kremlin’s decision-making apparatus helped to foreclose a policy of peaceful coexistence with the West. Stalin’s habit of surrounding himself with fawning sychophants, Yugloslav envoy Milovan Djilas noticed, ensured few challenges to the infallibility of his judgment. In an October 1944 interview with Edgar Snow, Soviet diplo­ mat Maxim Litvinov corroborated Djilas’ point when he complained that Stalin’s main foreign policy advisers—Molotov and his deputies, Andrei Vyshinsky and Vladimir Dekanozov—knew nothing about the West and reinforced Stalin’s prejudices. Despite repeated signals from London and Washington, Vojtech Mastny observes, “Stalin himself did not seem to accept readily the disturbing proposition that his subjuga-

COLD WAR IN THE SOVIET SPHERE

39

tion of East-Central Europe would necessarily lead to a clash with the West.”14 In a later conversation with British correspondent Alexander Werth, Litvinov claimed that Stalin and his advisers knew they had options in Europe, but deliberately chose a provocative policy: By the end of the war, [Litvinov] said, Russia had had the choice of two policies: one was to “cash in on the goodwill she had accumulated during the war in Britain and the United States.” But they (meaning Stalin and Molotov) had, unfortu­ nately, chosen the other policy. Not believing that “goodwill” could constitute the lasting basis for any kind of policy, they had decided that “security” was what mattered most of all, and they had therefore grabbed all they could while the going was good—meaning the whole of eastern Europe and parts of cen­ tral Europe.15 Stalinist ideology perhaps did not allow for the possibility of lasting cooperation with the West. As Stalin explained to Tito and Djilas in April 1945, “This war is not as in the past: whoever occupies a territory also imposes on it his social system. Everyone imposes his own system as far as his army can reach. It cannot be otherwise.” Stalin’s minimum aim in Europe was probably a security zone in the eastern half of the continent; his maximum aim, a demilitarized Germany and a politi­ cally fractured Western Europe, susceptible to Moscow’s pressure. As Mastny argues, the readiness of Roosevelt and Churchill to accede to Soviet demands in Eastern Europe only fed Stalin’s appetite for more. David Holloway adds: The Soviet leaders differed among themselves in their assess­ ment of how the capitalist world would develop, but they all seem to have shared the belief that the conflict between capital­ ism and socialism would sooner or later lead to a new world war. . . . The postwar years, in other words, were viewed by the Soviet leaders as a prewar period, and this reinforced the conclusion that the Soviet Union should once again give pri­ ority to increasing its military power.16 Internal political developments also shed light on Soviet foreign pol­ icy. In one view, the Kremlin moved quickly after the war to keep the Soviet population isolated from Western influences and to reinstate prewar discipline with the object of rebuilding the economy and restor­ ing the authority of the Communist Party. An alternative explanation holds that while Stalin wished to maintain good relations.with the West,

40

COLD WAR IN THE SOVIET SPHERE

he adopted provocative policies in order to retain the good graces of the militant wing of the international Communist movement. In either case, Western imperialism served as a convenient pretext for Stalin’s reassertion of power within the Soviet Union and for the suppression of national autonomy in Eastern Europe after 1947.17

U S . Interests in E astern E urope

Soviet policies in Eastern Europe challenged the American program for a free-trading, open world order. U.S. economic interests in the region, however, were minimal. Before the war, American assets in Eastern Europe had amounted to only $560 million, 12 percent of the U.S. investments in Europe and 4 percent of U.S. investments world­ wide. Similarly, American exports to the East European countries ($62 million annually, 1936-38) represented only 2.1 percent of total American exports. Postwar trade consisted largely of free UNRRA shipments.18 Revisionist historians generally concede that U.S. economic interests in Eastern Europe were minor before the war, but argue that American policymakers and businessmen hoped to develop and exploit that mar­ ket after the war. For this reason, they argue, the United States ag­ gressively challenged Soviet hegemony in the region. Of particular interest were U.S. petroleum companies. MAORT, a Hungarian sub­ sidiary of Standard Oil of New Jersey (SONJ), alone was responsible for about one-third of all oil production in Europe. Soviet seizure of American-owned oil fields as “German” war booty or reparations, as well as the nationalization of the industry by local governments, en­ raged U.S. oil company executives, but the State Department could do very little to help.19 In a July 1946 meeting at the State Department, for instance, a SONJ official complained that Rumanian Communist au­ thorities, in collusion with the Russians, were squeezing his company out of business. He demanded that the government retaliate, adding that “the U.S. was rapidly losing face because of its complete acquies­ cence to the Russians.” Yet William L. Clayton—the Assistant Secre­ tary of State for Economic Affairs who was the main proponent of liberal business ideology and free trade in the administration— counseled patience for the time being: [I]n light of the present situation in Eastern Europe, we must take a realistic attitude. [Clayton] described im considerable detail the history of our negotiations with Russians regarding

COLD WAR IN THE SOVIET SPHERE

41

Eastern Europe, and the necessity we have encountered of making compromises all along the way in order to get the ar­ mies out of the occupied territories so that rehabilitation can be started.20 Businessmen’s complaints about governmental inaction perhaps missed the point. The administration could do little to recover Ameri­ can assets in the Soviet zone and so instead concentrated its efforts in areas, namely Western Europe, where long-term U.S. interests and the prospects of success were greater. Nonetheless, the confusion in the State Department was real, for U.S. policymakers were torn by con­ flicting objectives—to sustain the wartime alliance with the Soviet Union, yet to uphold political and economic freedoms in Eastern Europe.

U .S . R elations w ith P oland, 1945-1947

American relations with East European governments varied with each country’s foreign policy orientation, internal political system, and policy toward U.S. business interests. An examination of American relations with Poland and Czechoslovakia shows that the Truman ad­ ministration was more interested in preventing total Soviet domination of those countries than it was in extending the U.S. economic sphere into Eastern Europe. Before Yalta, the Roosevelt administration had attempted to remain neutral in the dispute between the London Poles and the Soviets. A case in point was the episode of the Warsaw uprising during August and September 1944. While the Nazis slaughtered thousands of Polish reb­ els, the Red Army sat by the Vistula and refused to allow Western airdrops to the besieged Poles until it was too late. Although Roosevelt reprimanded Stalin, the President simultaneously urged Stanislaw Mikolajczyk, Premier of the Polish government in London, to make concessions to the Soviets on territorial and political issues. At Yalta in February 1945, the President accepted the Curzon Line and a Polish government dominated by the Soviet-backed Lublin Poles in return for Stalin’s promise to sponsor free elections. The Soviet failure to stage such elections or to reorganize the Polish government to American satisfaction provided the setting for Truman’s lecture to Molotov in April 1945. Truman’s words apparently fell on deaf ears, for Moscow’s interference in Polish politics increased. When the Soviets announced in early May that they had imprisoned sixteen

42

GOLD WAR IN THE SOVIET SPHERE

leaders of the anti-Nazi Polish underground, negotiations between the London Poles and Moscow came to a standstill. Yet the President feared that further delay would help to consolidate Communist rule, and following Harry Hopkins* talks with Stalin in June 1945, Truman scaled down U.S. demands for the reorganization of the Polish govern­ ment. In recognizing the reconstituted Polish government in early July 1945, Truman tacitly acknowledged predominant Soviet influence in that country.21 American policymakers at first expected that economic aid would exercise a moderating influence upon the new Polish government. Po­ land received more UNRRA aid than any other country except China, and the State Department encouraged Polish applications for surplus property and Eximbank credits. American confidence in Polish good faith soon waned. By the fall of 1945, Warsaw was engaging in prac­ tices—discrimination against U.S. trade, expropriation of foreign property, and a crackdown on the free press and pro-Western political parties—that American observers believed bore the stamp of the Kremlin.22 Officials in Washington were tempted to attach stiffer conditions to Polish aid. In September 1945, for example, Acting Secretary of State Dean Acheson informed Arthur Bliss Lane, the Ambassador in War­ saw, that Eximbank credits would be thereafter contingent upon Polish acceptance of Article VII of Lend-Lease, which is to say a nondiscriminatory commercial policy. State Department officials some­ times insisted upon this principle even when it hurt friends of the United States. In a November 1945 meeting in Washington, Vice Pre­ mier Mikolajczyk, by then a member of the reorganized Warsaw gov­ ernment, pleaded for American economic aid as (